There's good news and bad news when it comes to the unfolding reporting season with top brokers casting their vote on the state of the market and ASX company results.
While the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index has lost around 4% this month, our top 200 companies have delivered more profit beats than misses.
More beats to add to market rhythm
The analysts at Macquarie Group Ltd (ASX: MQG) noted that of the 57 stocks they cover which have handed in their report cards so far, 28% have posted stronger than expected results while 21% have under-delivered to expectations.
This is better than what I had been expecting and I think our market is holding up reasonably well given the challenging macro-economic environment leading into the results season.
UBS also noted that beats are edging out misses but there's a sinister side to the August reporting season – company outlooks are soft and our market is at risk of consensus earnings downgrades on FY20 estimates.
"While share price reactions to results have been positive, earnings revisions have been very negative, with the typical stock seeing downgrades to FY20 EPS at the worst pace since we started collecting data in 2015," said UBS.
Macquarie picked up on a similar negative trend with the broker commenting that the "results and forward-looking comments are not positive enough to encourage most analysts to lift their earnings forecasts".
Darkening FY20 outlook can't sink stocks
But don't panic. The fact that the market might be cum-downgrade, we aren't seeing much selling pressure overall.
Sure, stocks that disappoint are getting flogged, but there are a number of cases where the offending company is only getting a slap on the wrist.
The BlueScope Steel Limited (ASX: BSL) share price is a case in point as the stock was the biggest loser on the ASX 200 yesterday due to its poor outlook but the stock has recovered most of the losses and is the third best performer on the index today with a 8% plus gain to $12.10 a share.
A profit miss by Treasury Wine Estates Ltd (ASX: TWE) also hasn't cost its share price any. In fact, it's closing in on a near one-year high on Tuesday.
The fact that we haven't seen much in the way of a market meltdown despite the weak outlook suggests that investors have anticipated this outcome and aren't taken aback by the prospect of earnings downgrades in the current financial year, noted UBS.
I am sure the aggressive interest rate cutting mood of global central bankers is also adding support to equities. We look almost certain to be heading towards a zero-rate environment and there isn't a turnaround in sight for at least a few years.
Loose monetary policy has a strange effect on markets – it turns bad news into good.
